Strategic Defaulters Owe €10 Bln to Greek Banks

One in five (21%) of nonperforming loans in Greek banks’ portfolios, amounting to 10 billion euros, belong to borrowers who are able to repay them but choose not to in the hope they could get a favorable settlement.

According to a Kathimerini newspaper report, the majority of strategic defaulters, as bank officials call them, have home mortgage payments which they can afford but use the economic crisis as an excuse to avoid paying their dues. Bank officials estimate that out of a total 20 billion euros in residential mortgage NPLs, 30 percent (6 billion euros) belong to people who dodge repayments intentionally.

NPLs in corporate credit total 28.9 billion euros, of which an estimated 15% (4.3 billion euros) are debts that strategic defaulters have to pay.

According to the report, the mortgage strategic defaulters phenomenon is attributed to systematic encouragement by the “I Won’t Pay” political movement, supported by today’s ruling party when they were in opposition, the Syriza election promises of “Seisachtheia” (the Ancient Greek term for debt forgiveness), and the debt write-offs that banks had to make in order to get at least some of the money owed to them in light of the income losses brought by the economic crisis.

Strategic defaulters were also encouraged by a law introduced in 2010 by former economy minister Louka Katseli, according to which debtors could receive write-offs if they could prove that they were unable to meet their financial obligations since they were unemployed or their incomes were slashed because of recession. Currently, there are more than 150,000 applications from individuals hoping to reap the benefits of the Katseli law that remain pending in courts, with some of them scheduled as far as 2032.

The Greek State’s delay in setting the legal framework for debt write-offs further encourages debtors’ hopes. Bank officials say the steep rise in NPLs in January was partly due to expectations that out-of-court debt settlements would be introduced.